Competitive Listings or Closed Sales
The most important part of determining a property’s value is to review what properties are currently for sale and what properties have recently sold. There is no better indication of value than recent data of comparable homes. If the house next door is twice the size of the subject property and is on the market or just sold that information is crucial in determining the value of the subject property.
The main principle guiding a BPO is the principle of substitution. In a perfect world you should be able to make adjustments in a BPO that would make the sub- ject property a substitute for any of the comparables included on your report. Imagine a buyer is presented with two identical options, there should be no difference in which home they select.
Coming back to our example of the larger home next door to our subject. This may mean that you need to price the subject at a reduced price when compared to the larger home next door. There are always exceptions to this rule. You may say that maybe they don’t want a larger home or the upkeep required. There is also a possibility that the larger home next door is an over improvement. Regardless, there is value to the additional square footage. But these nuances are where you derive the market value of the subject property. This is the most subjective por- tion of the BPO and it’s important to understand that you are giving your opinion of how these factors may adjust the value of a home. When providing an opinion on a BPO always try and provide as much data as possible to back up your argument.